PcM — Practice Management (Firm Legal Structure)

Firm Legal Structure

Dividend

A portion of a corporation’s profits distributed to its shareholders. 股息／分红，即公司分配给股东的一部分利润。

Subchapter C corporation

Association of individuals that exits as a legal entity apart from its members. 作为独立于其成员之外的法律实体而存在的个人联合体。

Subchapter C corporation

Three types of members:

• Stockholders (elect Directors)

• Directors (elect Officers)

• Officers (manage day to day, fiduciary duty to Stockholders)

Subchapter C corporation

Advantages

• Members’ personal assets are not at risk

• Taxed at lower risk than individuals

Disadvantages

• Initial cost, paperwork, formal requirements, double taxation

Subchapter C corporation

Taxes

• Corporations are taxed twice:

  • Corporations are taxed on profits

  • Shareholders are taxed on dividends

fiduciary duty

the legal and ethical obligation to act in another party’s best interests.
信义义务：依法并合乎职业道德地，以受托对象的最佳利益行事。

Sole Proprietorship

Description

• Simplest business type

• Owned by individual

• Default if no formal action is taken

• NOT an independent entity from the individual

Sole Proprietorship

Advantages

• Ease of setup

• Total control for sole proprietor

• Business expenses and losses deducted from gross income of business

Disadvantages

• Owner personally liable for debts and losses; assets and property can be seized

• Credit determined by personal credit

• Difficult to sell the business

Sole Proprietorship

Taxes

• No separate federal tax return filed or tax incurred

• File Schedule C (Form 1040) — Profit and Losses from Sole Proprietorship every business quarter

can be seized

可能被依法扣押，用于偿还债务

Personally liable

The individual is personally responsible for paying the debt or loss, and their personal assets may be used to satisfy it.
个人必须承担债务或损失，个人财产也可能被用于偿还。

debts and losses

债务与亏损

General Partnership

Description

• 2 or more general partners practicing together, sharing management, profit, and risk

• No formal legal steps required

General Partnership

Advantages

• Partnership allows sharing of different skills

Disadvantages

• Partners are personally liable for debts and losses, including actions of other partners

General Partnership

Taxes

• Files federal return but does not incur taxes

• Flow-through entity: Income and losses pass to partners, taxed at individual rates

Incur taxes

To become responsible for paying taxes or to create a tax liability.
产生或承担缴纳税款的义务。

Flow-through entity

A business entity whose income and losses pass through to its owners, who report them on their individual tax returns and pay tax at individual rates. The entity itself generally does not pay federal income tax.
企业的利润和亏损转给所有者，由所有者按个人税率申报纳税。

Stockholders, Directors, Officers

What are the three types of members in a Subchapter C Corporation?

Stockholders

Who elects directors in a Subchapter C Corporation?

Directors

Who elects officers in a Subchapter C Corporation?

Officers

Who manages the day-to-day operations in a Subchapter C Corporation?

Stockholders

Who do officers have a fiduciary duty to?

Limited Partnership

• At least 1 general partner and at least 1 limited partner

• General partners invest in the business and are personally liable

• Limited partners invest, receive a portion of profits, and are only liable for their own investment

Limited Partnership

Advantages

• Partnership allows sharing of different skills

• Differentiated partnership provides a means to distribute power and risk

Disadvantages

• General partners are personally liable for debts and losses, including actions of other partners

Limited Partnership

• It files a federal information return but generally does not pay federal income tax itself.

• Flow-through entity: Income and losses pass through to both general and limited partners according to their distributive shares.

one general partner and one limited partner

What two types of partners are required in a limited partnership?

general partner

Who manages a limited partnership?

general partner

In a limited partnership, who is personally liable for the partnership’s debts and losses?

flow-through entity

What type of tax entity is a limited partnership?

Limited partnership

Which business structure requires at least one general partner and one limited partner?

Limited partnership

In which structure does one partner manage the business with personal liability while another partner risks only their investment?

Limited partner

In a limited partnership, which partner receives profits but is generally liable only for the amount invested?

Subchapter S Corporation

• Small business corporations (no more than 100 shareholders)

• Allocates income and losses directly to shareholders in proportion to their holdings

Subchapter S Corporation

Advantages:

• Stockholders are protected against claims except negligence 股东免受索赔，但因疏忽引起的索赔除外。

• The corporation is not taxed

Disadvantages:

• Inhibited corporation growth

Inhibited

e.g.

Inhibited corporation growth = 限制公司的发展/扩张

Allocates

e.g. Allocates income and losses directly to shareholders in proportion to their holdings.

按照股东的持股比例，直接把收入和亏损分配给股东。

Professional Corporation

• Owned by stockholders who must all be licensed.

Professional Corporation

Advantage:

• Liability for malpractice is limited to the professional who committed the act.

Disadvantage:

• Specific regulations can be cumbersome.

Professional Corporation

• Files federal tax return but does not incur taxes.

• Flow-through entity: Income and losses pass through to stockholders, taxed at individual rates.

cumbersome

Difficult to handle because it is complicated or heavy.
繁琐的；笨重难处理的

e.g. Specific regulations can be cumbersome.

Liability

Legal responsibility for something, especially a debt, damage, or mistake.
法律责任；债务

e.g. Liability for malpractice is limited to the professional who committed the act.

malpractice

Improper, illegal, or negligent professional conduct.
渎职；专业过失；医疗事故
e.g. The architect may be liable for professional malpractice.

against claim

Protected from a legal demand for money or compensation.
免受索赔 / 防止或应对索赔

e.g. Professional liability insurance protects the firm against claims.

Limited Liability Partnership

DESCRIPTION

• Liability is limited to each partner’s individual professional negligence and malpractice. Partners are considered self-employed.

• Frequently superseded today by LLCs.

• Professional Limited Liability Partnership: Partners must all be licensed.

Limited Liability Partnership

ADVANTAGES

• Partnership allows sharing of different skills.

• Personal assets are protected from most claims; partners are liable only for their own negligence and malpractice.

DISADVANTAGES

• Complex formation process, must form an LLP.

Limited Liability Partnership

TAXES

• Files federal tax return but does not incur taxes.

• Flow-through entity: Income and losses pass to general partners, taxed at individual rates.

Limited Liability Corporation

DESCRIPTION

• Partners are members, liability is limited to individual professional negligence and malpractice.

• Members elect Managers, who have a fiduciary responsibility to Members.

• Professional Limited Liability Corporation: Members must all be licensed.

Limited Liability Corporation

ADVANTAGES

• Same as Limited Liability Partnership, with flexible taxation:

  • Taxation can be treated as a sole proprietorship, partnership, or corporation.

DISADVANTAGES

• Complex formation process, must form an LLC.

Limited Liability Corporation

TAXES

• Has the option to assess taxes as a Corporation OR a Flow-through entity.

Joint Venture

• Temporary alignment of 2 or more persons or firms to complete a specific project.

• Memorandum of Understanding is often used to formalize agreement.

Joint Venture

Advantages

• Good for complex projects when firms have complementary experience.

Disadvantages

• Each partner or firm is liable for the actions of the other; they can be sued individually or collectively.

• Difficult to allocate responsibility and liability.

Joint Venture

Taxes

• Pays no tax and earns no income or profit; each partner or firm’s taxation proceeds as separate entities.